In the bad old days before labour unions forced reforms, companies - especially in industries where workers were isolated, like mines, lumber, and farming - would pay their workers in scrip. Scrip was a credit that was only accepted at the company's store - a store that charged wildly inflated prices. What a great deal for the owners, eh? They paid meagre wages, then recovered every penny, while ensuring they retained a steady supply of labourers who were (literally) hungry to work at any wage.

Now, in a digital-age capitalist remix, McDonald's, Home Depot, Wal-Mart, and other high-profit, low-wage corporations are forcing or coercing employees to receive wages paid on Big Bank debit cards. And - what a surprise - the debit cards are riddled with fees - fees for purchases, fees for cash withdrawals, even fees for card inactivity.

It's not quite company scrip, as these fees don't go back into McDonald's pockets, but once again, the workers who can least afford it are being squeezed for maximum corporate profits.[Please see update, below.]

For these largely hourly workers, paper paychecks and even direct deposit have been replaced by prepaid cards issued by their employers. Employees can use these cards, which work like debit cards, at an A.T.M. to withdraw their pay.

But in the overwhelming majority of cases, using the card involves a fee. And those fees can quickly add up: one provider, for example, charges $1.75 to make a withdrawal from most A.T.M.’s, $2.95 for a paper statement and $6 to replace a card. Some users even have to pay $7 inactivity fees for not using their cards.

These fees can take such a big bite out of paychecks that some employees end up making less than the minimum wage once the charges are taken into account, according to interviews with consumer lawyers, employees, and state and federal regulators.

Devonte Yates, 21, who earns $7.25 an hour working a drive-through station at a McDonald’s in Milwaukee, says he spends $40 to $50 a month on fees associated with his JPMorgan Chase payroll card.

“It’s pretty bad,” he said. “There’s a fee for literally everything you do.”

Certain transactions with the Chase pay card are free, according to a fee schedule.

Many employees say they have no choice but to use the cards: some companies no longer offer common payroll options like ordinary checks or direct deposit.

At companies where there is a choice, it is often more in theory than in practice, according to interviews with employees, state regulators and consumer advocates. Employees say they are often automatically enrolled in the payroll card programs and confronted with a pile of paperwork if they want to opt out.

“We hear virtually every week from employees who never knew there were other options, and employers certainly don’t disabuse workers of that idea,” said Deyanira Del Rio, an associate director of the Neighborhood Economic Development Advocacy Project, which works with community groups in New York.

Taco Bell, Walgreen and Wal-Mart are among the dozens of well-known companies that offer prepaid cards to their workers; the cards are particularly popular with retailers and restaurants. And they are quickly gaining momentum. In 2012, $34 billion was loaded onto 4.6 million active payroll cards, according to the research firm Aite Group. Aite said it expected that to reach $68.9 billion and 10.8 million cards by 2017.

. . . .

Sometimes, though, the incentives for employers to steer workers toward the cards are more explicit. In the case of the New York City Housing Authority, it stands to receive a dollar for every employee it signs up to Citibank’s payroll cards, according to a contract reviewed by The New York Times. (Sheila Stainback, a spokeswoman for the agency, noted that it had an annual budget of $3 billion and that roughly 430 employees had signed up for the card.)

For Natalie Gunshannon, 27, another McDonald’s worker, the owners of the franchise that she worked for in Dallas, Pa., she says, refused to deposit her pay directly into her checking account at a local credit union, which lets its customers use its A.T.M.’s free. Instead, Ms. Gunshannon said, she was forced to use a payroll card issued by JPMorgan Chase. She has since quit her job at the drive-through window and is suing the franchise owners.

“I know I deserve to get fairly paid for my work,” she said.

. . . .

For banks that are looking to recoup billions of dollars in lost income from a spate of recent limits on debit and credit card fees, issuing payroll cards can be lucrative — the products were largely untouched by recent financial regulations. As a result, some of the nation’s largest banks are expanding into the business, banking analysts say.

The lack of regulation in the payroll card market, while alluring for some of the issuers, can potentially leave cardholders swimming in fees. Take the example of inactivity fees that penalize customers for infrequently using their cards. The Federal Reserve has banned such fees for credit and debit cards, but no protections exist on prepaid cards. Cards used by more than two dozen major retailers have inactivity fees of $7 or more, according to a review of agreements.

Some employees can also be hit with $25 overdraft fees, called “balance protection,” on some of the prepaid cards. Under the Dodd-Frank financial overhaul law, banks with more than $10 billion in assets are barred from levying overdraft fees on customers’ checking accounts.

Many fees are virtually impossible to dodge, some employees say. A Victoria’s Secret employee, Bintou Kamara, for example, said it cost her $1.50 just to transfer money from her Citi payroll card to her checking account.

“I just make such little money that it seems like a lot to pay just to get access to it,” said Ms. Kamara, 23, who works as a sales clerk in New York.

Naoki Fujita, a policy associate at Retail Action Project, an advocacy group for retail workers, said, “These are people who can least afford to fork over huge fees.”

But McDonald's has not stopped the practice nationwide, nor have any other companies. Attorneys general in some states are investigating. We can be sure of one thing: nothing will change unless and until workers continue to make noise, both in the courts and in the streets.

But let it not be said that McDonald's doesn't try to improve the lives of its workers. The world's largest fast-food chain recently formed a partnership with one of the world's largest financial corporations to help McDonald's employees survive on McDonald's wages.

Here I'll turn it over to Occupy Democrats, because I can't possibly improve on what they've written.

...this gesture of goodwill completely backfired when whoever wrote it proved literally incapable of putting his/herself in the shoes of a minimum wage fast-food employee. Instead, all it did is tellingly show how there is almost no way to scrape a living on a minimum wage salary.”

Not only does the budget clearly indicate a second job is a NECESSITY because it’s impossible to make ends meet with just the one job, it also gives wholly unreasonable estimates for employees’ costs: $20 a month for health care, $0 for heating, and the generally low $600 in rent. It also does not include any budgeted money for food or clothing or gas. No heat, no water, no natural gas bills, no food, just electric AND you must have a second job.

This isn’t even a proper low-income budget.

Let us assume a McDonald’s worker earns the Federal minimum wage of 7.25$/hour. If we calculate that amount into what McDonald’s says a worker earns in a month, that will be nearly 40 hours per week.

It’s absurd to think someone working full time has time for an extra full time job.

At the federal minimum wage of only $7.25 an hour, with just one job, a typical fast-food worker earns about $9,000 a year. Using the same wage criteria for the second job it comes in at almost 35 hours per week by itself, for a grand aggregate total of 75 hours of work per week holding down two jobs, or 10 hours per day.

Now, talk to an average McDonald’s worker (or other fast food for that matter) and see how likely they are to have anywhere close to full-time hours at one employer, much less all their jobs.

Even that overstates the annual earnings of most fast-food workers, whose managers typically limit them to less than the “full time” hours that qualify them for health care, vacation, and other benefits.

The minimum wage in America is an abomination. It is not a living wage by any means and it’s impossible to get by with such a low salary. If the minimum wage had kept up with inflation, it would now be over $10 an hour. If it had kept up with skyrocketing productivity as it lined employers pockets’ the minimum wage would be $21.72.

Paul Campos, writing in Salon, uncovers the grievously insulting assumption underlying this budget: poor people are poor because they don't know how to manage their money.

These are all valid points, but an even more basic criticism of McDonald’s helpful advice to its workforce needs to be made.

The unstated assumption behind the McDonald’s budget is that the working poor must be educated about financial planning. And that assumption is in turn a belief that is deeply embedded among America’s cultural elites – including among many people who consider themselves political progressives.

That belief is: The working poor are poor because they are at bottom spendthrifts, who don’t know the value of a dollar. The working poor may have jobs, they may even work hard for their money, but they don’t know how to save for a rainy day. Instead, they squander their wages on overpriced impulse purchases, including fancy cellphones, cable TV, proletarian beer and unhealthy food that makes them fat.

. . . In fact nothing could be more preposterous than rich people giving poor people advice on how to stretch a dollar. The absurdity of this is captured perfectly by John Scalzi’s aphorism that “being poor is knowing exactly how much everything costs.”

I have seen secondhand (like most members of the pundit class, I am not personally poor) a woman feed herself and her three children on a $30 per week grocery budget, for months on end. I’ve been amazed by her combination of discipline, creativity and self-sacrifice. (A commenter to Scalzi’s post writes: “Growing up poor means realizing twenty years later that Mommy was lying when she said, ‘it’s OK sweetie, I’ve already eaten.’”)

. . . The great legal historian A.W.B. Simpson once said to me that “the problem of the poor is not that they’re oppressed, but rather that they have no money.” Precisely. The working poor generally work far harder than their well-intentioned upper-class advisers, but they have no money.

In other words, the poor don’t need financial advice; they need higher wages. Yet apparently The Market – our all-seeing, beneficent Market, which declares that it is right and just that some men should have billions, while others sleep under bridges – has decided that higher wages for the working poor are an offense against all that we hold sacred.

This past weekend, McDonald's workers in our old New York City neighbourhood of Washington Heights walked off the job after being forced to work without air conditioning on the hottest day of the summer. One worker collapsed and was rushed to the hospital. Her co-workers said: enough is enough.

Broken air-conditioning at a Dunkin' Donuts in Chicago caused similarly inhumane conditions, and a similarly strong response. People earning a miserly $7.25/hour cannot be expected to work in a kitchen without air conditioning as triple-digit (F) temperatures sizzle outside.

* * * *

You can support these workers struggles through movements like Fight for 15. You can also support them by boycotting McDonald's.

McDonald's food ruins your health, impoverishes your community, tortures animals in feedlots, exploits migrant workers, and destroys the environment. If for some reason you still want to eat fast food, at least take McDonald's off your list.

* * * *

Update. I wrote "It's not quite company scrip, as these fees don't go back into McDonald's pockets, but once again, the workers who can least afford it are being squeezed for maximum corporate profits." anticipating some nitpicky comments. But in my haste to post, I didn't take my analysis far enough, or I never would have written that qualifying sentence. Fortunately for us, wmtc readers were right on it.

M@ speculated that McDonald's undoubtedly has a sweetheart deal with Visa, and "the banks will make such huge profits on all these accounts that they'll be throwing money or perks at McDonald's left, right, and centre". We're hardly going out on a limb if we agree with that one.

10 comments:

Not much to add here -- it's outrageous, of course, and stunning. But I don't think you're being cynical enough with this:

It's not quite company scrip, as these fees don't go back into McDonald's pockets

I don't believe that for a second. There isn't a single doubt in my mind that McDonald's isn't getting a huge cut of those fees back in one way or another. They probably get their payroll done for free or something; the banks will make such huge profits on all these accounts that they'll be throwing money or perks at McDonald's left, right, and centre.

I would even go further. Service companies (like banks, telecom, and insurance) are desperate to get customers, because they know that once a customer is with them, it's very likely that they'll stay with them. It's too much hassle and annoyance to change banks, cell phone companies, and so on.

So getting customers is a big deal. That's why incentives are so high with starting with a new cell phone company. That's why signing up for a new subscription with a newspaper can get you a bunch of free swag.

These companies have an idea of the cost of acquiring a new customer. They have to -- otherwise they have no way to measure the success of, say, a new advertising campaign. They know that they can provide, say, $10 worth of incentives because the average customer stays for 3 years and nets a total profit of $10 a year. $10 to get $30 over the 3 years is a great investment.

Now McDonald's is handing them tens of thousands of new customers. What, out of generosity? You can bet that McDonald's put out a request for services, and all the big banks fell all over themselves to offer incredible incentives. We'll pay for your payroll ($2/customer/year), we'll do some responsible advertising so that your employees know how to use our accounts ($2/customer/year, and smug satisfaction about being good corporate citizens), and we'll give all your management employees gold-plated accounts, great 401k accounts, etc. ($1/customer/year).

The banks make a nice profit on all the new customers they get. They split that profit with McDonald's. Everybody wins!

I am such a sucker for loyalty cards and gift cards that I purposely avoid them. Cards end up controlling my spending habits! I can't be the only one.

My Starbucks card is the perfect example of the interest-free loan and long-term customer all wrapped up in one neat consumerist package.

Allan got a Starbucks card as a thank-you from a lawyer at work. (As I'm sure you all know, gift cards have become the currency of thank-yous.) Allan turned the card over to me and I happily used it for free iced coffees.

Then I reloaded it.

And continued to do so.

Now I hardly ever use it, but I keep money on it, and when I'm broke, I use it to treat myself to what feels like free iced coffee, because the money was spent so long ago. And all that time, Starbucks has money of mine.

AND at the same time, cards have become increasingly popular. People give a card as a thank you when they would never give cash. Cash would be considered crass, a gift is too time-consuming and too risky, unless you know the person really well, and the card is an easy middle ground.

I wish we could all reverse this trend, the same way I wish everyone would stop using self-checkout at retail stores.

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